Complementary Monopolies and Bargaining

Tuna Baskoy The Political Economy of European Union Competition Policy: A Case Study of the Telecommunications Industry, Routledge: London, 2008, 242 pp: 9780415965255 60 [pounds sterling] (hbk) There is a widespread consensus on the importance of competition policy. The mainstream political right sees it as a necessary means of ensuring a free market economy, while for the mainstream left it is a way of curbing monopoly and the concentration of corporate power in capitalism. All see competition as necessary to promote innovation and to enhance economic efficiency, prosperity and social welfare. Competition policy is perceived as necessary because 'perfect competition' is not encountered in the real world, and firms often behave in ways that are detrimental to competition. Competition policy has thus become the central pillar of modern micro-economic policy, conducted mainly by technocratic agencies and paralleling monetary policy as the central pillar of macroeconomic policy. Most developed industrial nations have independent competition agencies, and the European Commission has significant supranational powers in the area. This all suggests that competition policy and its implementation is and should be a matter mainly for technical specialists, a perspective that is intellectually rooted in liberal theory of market competition, and that underpins much of the literature on competition policy. This book seeks to undertake a critical analysis of these assumptions grounded in critical political economy and drawing on the development of competition policy in the EU telecommunications sector. Baskoy makes a compelling argument that most studies in the large body of literature on competition policy take the liberal model for granted, and do not critically analyse the nature of either market competition or competition policy. This consensus and the assumptions of the liberal model, Baskoy argues, have led to a European market in telecommunications that is not highly competitive, and that has favoured larger corporate interests at the expense of broader social and consumer welfare. At the heart of the book is a critique of the notion of 'workable' or 'effective' market competition that is put forward by many mainstream analysts of EU competition policy, and which informs the European Commission's policy making. The model of workable competition purports to overcome some of the problems of the liberal model, notably the static focus on market structure and the unobtainable ideal of perfect competition. Workable competition focuses more on the process of competition, and involves a recognition that it can flourish in oligopolistic structures and that the dynamics of markets mean that competition policy might have to be adjusted during short-run falls in profitability to ensure longer-term sustainable competition. Nevertheless, Baskoy argues that workable competition shares some of the key weaknesses of the liberal model--in particular its failure to conceptualise market competition in terms of varying economic, social and political power--and the underlying assumption that the state is an independent and omnipotent body. In order to address these policy and analytical problems, Baskoy argues for the adoption of a more credible model of market competition. Drawing on radical traditions in the analysis of markets, notably Thorstein Veblen, the book suggests the need for a model of 'dynamic market competition' in which market competition is conceptualised in terms of multiple political, economic and social forces, and competing values and ideas. This offers the hope of a better understanding of market competition by policy makers and the hope of better competition policy that might increase social welfare, rather than the welfare of those with economic power. …

In market economy, there are four types of markets: perfect competition, monopolistic competition, oligopoly, monopoly. The main differences among them are the ability to set price, barrier to enter and exit the market, numbers of companies. To study innovation’s efficiency in these markets, it is necessary to understand their special characteristics. To simplify the problem, when patent is employed, only the innovation company has the access to this new technology. When it does not exist, every company in the market can use the new technology. In perfect competition market, there are no barrier to enter or exit and lots of companies producing identical products, so no company can set the price. Because there is no barrier, companies that can earn profit will enter the market, which decreases the price. Eventually, all companies’ marginal cost, average cost and marginal benefit is equal to the price, average benefit. In other words, companies in perfect competition market earn zero economic profit. Social welfare is always maximum in this type of markets. In this case, when one company discovers new production technology, other companies will follow immediately. Lower cost causes higher supply, which makes the price decrease and equal to the average cost eventually, leaving every company having zero economic profit, including the first company discovered the new technology, so there is no incentive for any company to spend resource on innovation. However, consumers’ welfare would increase because of lower price. When patent is employed, one company can produce products in a lower price and earn certain economic profit, but can hardly make an influence on the market because there are too many suppliers. Thus, in perfect competition market, patent is a good way to provide incentives for innovations. In monopolistic competition market, there are lots of companies selling slightly different products. The difference among products enables one company to increase the price over in a limited range, so monopolistic competition market is inefficient. In this type of markets, there are two types of innovations: technology and product. The former one reduces the cost and has the same consequence as that in perfect competition market. The latter one, product innovation, makes the product more special, giving the company more market power. However, without patent, product innovation will be copied easily, making the original product less special and canceling out the market power gained by the original company. Since there is no economic benefit, there is no incentive for any company in the market to innovate. When patent is employed, products’ difference is kept and gives the company more market power since there is consumer preference in monopolistic competition market. This increase of market power is not as negligible as that in perfect competition market, so the market becomes less efficient when the company with patent increases the price. In oligopoly market, there are only a few companies with great market power, so all of them can set the price. In this market, companies make decision based on both output and price effects. Output effect means when price is higher than marginal cost, companies can increase profit by increase its output. Price effect means when a company increases its output, the market price goes down, causing less profit for the company. When output effect is more impactful than price effect, companies will increase sales. When price effect is more impactful than output effect, companies will decrease sales. Oligopoly market can be inefficient without restrictions. Regarding innovations, there is still no incentives without the presence of patents. With patent, innovation company will gain market power that is huge enough to cause inefficiency and even to force other companies to exit the market. Thus, patent in oligopoly market will cause negative impact on society, which should be limited. The last type of markets if monopoly. In monopoly market, there is only one company, so patent is necessary. When this company innovates and decreases its production cost, it will tend to increase its output to maximize profit, which enlarges consumers’ welfare. However, this increase is not as much as that in perfect competition market, so innovation in monopoly market is still inefficient.

Legal Unbundling Can Be a Golden Mean between Vertical Integration and Separation

This study analyzes the degree of competition in the oil refinery market in Korea, which is considered an oligopoly market. The price of gasoline and diesel and the quantity of supply are used to identify the market competition. We also analyze whether the oil tax reduction policy has affected market competition. The competitiveness of the market was examined using monthly data from 2008 to 2019. Bresnahan-Lau method was employed to estimate the degree of competition in the oil refinery market, which is frequently used in the industrial studies. The analysis shows that the gasoline and diesel markets seem close to a perfect competitive market. Also, the tax cut has weakened market competition. In other words, the monopolistic power has increased in the market, so consumers have not benefit from the price cuts as much as tax cuts. Although the oil refinery market where four major companies are competing, the government's monitoring and price disclosure system help the market to be highly competitive as much as a perfect competition market. The tax cut, in the high oil price era, has a negative effect on the competition because of an information asymmetry about the price-setting process between suppliers and consumers.

Antitrust policy and commentary include a persistent suspicion that vertical integration may increase market power in the integrated industries. The facet of this suspicion that economists have analyzed most is conveyed as follows. Suppose that a pure monopoly sells an intermediate good to the firms in a final product industry and that the monopolist acquires all of those firms. Since the firms in the final product industry have been combined, vertical integration has extended monopoly to a second industry. The integration does not improve production technologies or product traits in either industry nor reduce transaction costs, thus abstracting from any economies of integration. This paper concerns the paradox that economic models usually show vertical integration increasing economic welfare, in spite of the extension of monopoly, and even in the absence of any economies. Since economies would also enhance welfare, these models contradict the suspicion that vertical integration is harmful. In a recent survey of these models, Blair and Kaserman have commented that [o]n the basis of these results, the economics profession generally argued that the appropriate antitrust policy regarding vertical integration ... was conciliation at best or neutrality at worst [2, 2]. The only contrary result is in models where inputs are substitutable in final production: sometimes vertical integration reduces welfare.' However, in order to focus sharply on the paradoxical welfare result, this paper assumes fixed input proportions and ignores any economies of integration. Section I has a summary model that sets the stage for the succeeding analysis. The principal discovery of this paper is that the paradox is not in general valid, even for a simplified model. This discovery appears when the assumption of pure input monopoly, which is universal in the existing literature, is relaxed in section II. The new model includes situations in which integration reduces welfare, contrary to the usual result. These contradictory situations have strong implications for antitrust policy, because the analysis also shows that they ate the only kinds of situations that antitrust enforcers are likely to confront:

The impact of mergers on the market shares of acquired companies is estimated using market share data for the 1000 largest companies of 1950 and 1972. Market shares are computed for conglomerate and horizontal acquisitions between 1950 and 1972. To control for other factors that might affect market shares, market shares of acquired firms are compared with those of a control sample of unacquired firms drawn from the same industries. Companies acquired in a conglomerate merger and companies joining in horizontal mergers are both found to experience substantial losses in market shares relative to control group companies following the mergers. M s ERGERS have over the course of the last century transformed the corporate landscape. A careful examination of the 1,000 largest manufacturing companies of 1950 revealed that 384 had disappeared through mergers by 1973 (Mueller, 1983, p. 4). Others from this list have disappeared since. A look at the 100 largest corporations in the United States reveals a mere handful for which mergers did not figure substantially in their growth at one time or another. Exxon, United States Steel, and General Motors were spawned in the early merger waves. Textron, ITT and Occidental Petroleum are products of recent merger history. The process of transformation through merger continues unabated through today. Despite the venerability of this process and its profound influence on corporate structure, our knowledge of the economic effects of mergers is spotty, and disagreement exists regarding what the existing evidence shows. Most studies of early merger activity focussed on the effects of mergers on the profitability of the merging companies. Here a fair consensus exists that the mergers of the first two greater merger waves are more likely to have lowered than to have increased profitability.' A similarly mixed picture of the effects of mergers on the profitability of the merging companies is presented in studies of post World War II merger activity in this country and Europe.2 Most recent studies of the effects of mergers have looked at their impact on the returns on common shares. Here it appears that the shareholders of acquired companies are unquestionably better off, but shareholders of acquiring companies may or may not be better off, and some disagreement exists over whether the net effects of mergers on stockholder wealth are positive or negative.3 This paper takes a fresh look at the effects of mergers question, by examining their impact on a heretofore almost unexplored variable, market share. Several recent studies have found that market shares are positively related to profitability (e.g., Ravenscraft, 1983), and market share is a frequently cited objective of corporate management. Thus, one might legitimately evaluate the successfulness of mergers by their impact on market shares. On the other hand, in certain situations, as for example, in a horizontal merger in an industry with less than perfect collusion, the combined market share of the merging firms could fall although their profits rose (see Salant, Switzer and Reynolds, 1983; Perry and Porter, 1983). Thus, we shall not attempt to relate our results to the literature on mergers effects on either profitability or stockholder wealth. We ask instead the more modest question of whether mergers have succeeded in increasing the market shares of the acquired firms. The next section describes the data and empirical tests. Results follow in section II, discussion of the results and conclusions in sections III and IV. I. Data and Methodology Our sample is drawn from Federal Trade Commission surveys for 1950 and 1972 of sales at the 5-digit level for the 1,000 largest companies in Received for publication October 26, 1983. Revision accepted for publication August 21, 1984. *University of Maryland, College Park and Federal Trade Commission. Helpful comments on earlier drafts were obtained from Ronald Brauetigam, Paul Geroski, David Ravenscraft, and two referees. My thanks go to Carl Schwinn for his programs aggregating the CPR data into our economic markets, and to Paul Bagnoli, John Hamilton and Talat Mahmood for additional computer assistance. The views expressed in this paper are my own, and should not be assumed to be shared by the above mentioned gentlemen, any of the FTC staff, or its commissioners. 1 For surveys of this literature and references to earlier studies see Markham (1955) and Hogarty (1970). 2 For the United States see Weston and Mansinghka (1971); Melicher and Rush (1974); and Mueller (1980), ch. 9. For Europe see Meeks (1977); Cowling et al. (1979); and 6 country studies in Mueller (1980), ch. 3-8. 3For surveys see Steiner (1975), ch. 8; Mueller (1977,1981); Scherer (1980), pp. 138-141; and Halpern (1982).

Social welfare and cross-ownership in a vertical industry: When the mode of competition matters for antitrust policy

Competition in the agricultural sector results from the unity of conflicting factors: the maximum freedom of activity of market forces and the significant influence of the state on the processes taking place in the industry, which ensures the overall efficiency of social production. Regulation of competition in the agricultural market in developed countries is a developed and expensive system. Currently, it is impossible to provide the same robust support to the agricultural sector in the country, but the principles and methods used for this can be taken into account. Different types of competition are developing in the agri-food market. Intra-industry competition is possible only if production and sales costs are reduced and weak, technically backward enterprises are pushed out of the market. Interindustry competition leads to the redistribution of capital and other resources between industries, taking into account the rate of return. Participation in agriculture in this competition is only possible with state support due to the low speed of capital turnover and high capital intensity in this field. Intra-industry competition initiates technical progress, and inter-industry competition contributes to the structural development of the agricultural industry. To a certain extent, agricultural product markets are characterized by perfect competition, and food markets are characterized by monopolistic competition. It is emphasized that competition covers all spheres of commodity production, distribution, market exchange, and consumption. It manifests differently in each branch of the economy, which is determined by the specifics of their activity. Conducted studies of competition in the market of agricultural raw materials and food indicate the need to strengthen the competitiveness of domestic agricultural products and ensure consumer, quality, and price characteristics of agricultural products, raw materials, and food that are comparable to the world level, regardless of orientation to domestic or foreign markets. It is noted that competition in agriculture is characterized by many competitors on the market and obstacles in the production and sale of agricultural products.

The article briefly outlines key economic principles that are used for merger appraisal in Europe and the US. We consider three most typical cases: horizontal, vertical and conglomerate mergers. We explain the main positive and negative effects that typically arise in each case. We point that the analysis of structural factors (levels of industry concentration and market shares) and barriers to entry can serve only as a starting point of the merger appraisal process. Other indicators such as closeness of competition, countervailing buyer power and customer switching, counter-reactions of rivals, levels of profitability, cost savings are far more important for the analysis of merger effects on consumers and competition. In addition, we describe general economic principles with regards to merger remedies.

This paper focuses attention on the similarities underscoring an unorganized imperfectly competitive market and the perfectly competitive market. Its resulting theory is believed to be an original interpretation of competitive equilibrium in that imperfect market.' Though our main conclusions are obtained by references to a competitive spatial market, the thesis presented herein applies in general to any unorganized imperfectly competitive market, spatial or spaceless. Because of this condition, such spatial particulars as the locational distribution of industry, the shapes of the market areas of firms, the impacts of distance on demand curves, and the like, need not be discussed here and hence are left to other writings [11; 14; 15]. Only the frame of reference in this paper is set along spatial lines, and this essentially for descriptive purposes alone. The upshot is that our real focus is on any unorganized imperfectly competitive market, as characterized and defined below in Section I.

This paper presents an optimization-based method to model the mid-term operation of a hydrothermal power system in a competitive market. Two market structures are examined: perfect competition and oligopoly comprising a dominant firm with a competitive fringe. In the latter, the dominant firm bidding strategy is determined by solving a profit maximization problem; forward contracts are also modeled. Producers submit offers to a day-ahead market, which is cleared by the system operator on a bid-cost minimization basis. A yearly planning horizon with hourly time intervals is adopted. A real size hydrothermal system, similar to the Greek Power System, is used for our tests. Hourly thermal unit commitment and start-up / shut-down decisions, market clearing prices, hydroplant generation / pumping and reservoir volumes, monthly price duration curves, ISO payment and thermal producer profits are among the results obtained.

Subsidy on transport adaptation investment-modeling decisions under incomplete information and ambiguity

Does the competition mode influence the delegation decisions of the firm owners? By constructing a vertical negotiation game model, we find that under Cournot competition in the downstream market, the downstream firm's owner will not choose delegation, whereas under Bertrand competition, the downstream firm's owner will choose delegation. If the product substitution is relatively large, the adoption of delegation management by the owners of downstream firms under Bertrand competition will bring higher profits. It further shows that compared with the situation of no delegation, delegation management may reverse the social welfare ranking under Bertrand and Cournot competitions.

Auctions for Essential Inputs

This thesis studies three game theoretic models of pricing, in which a seller is interested in optimally pricing and allocating her product or service to a market of agents, in order to maximize her revenue. These markets feature a large number of self-interested agents, who are generally heterogeneous with respect to some payoff relevant feature, e.g., willingness to pay when agents are consumers or private cost when agents are firms. Agents strategically interact with one another, and their actions affect other agents' payoffs, either directly through social influence or competition, or indirectly through a review system. The seller has demand uncertainty and strives to optimize expected discounted revenues. I use either a mean-field approximation or a continuum of agents assumption to reduce the complexity of the problems and provide crisp characterizations of system aggregates and equilibrium policies. Chapter 2 considers the problem of an information provider who sells information products, such as demand forecasts, to a market of firms that compete with one another in a downstream market. We propose a general model that subsumes both price and quantity competition as special cases. We characterize the optimal selling strategy and find that it depends on both mode and intensity of competition. Several important extensions to heterogeneous production costs, information quality discrimination, and information leakage through aggregate actions are studied. Chapter 3 considers the problem of optimally extracting a stream of revenues from a sequence of consumers, who have heterogeneous willingness to pay and uncertainty about the quality of the product being sold. Using an intuitive maximum likelihood procedure, we characterize the solution of consumers' quality estimation problem. Then, we use a mean-field approximation to characterize the transient dynamics of quality estimates and demand. These allow us to simplify and solve the monopolist's problem, and ultimately provide a characterization of her optimal pricing policy. Chapter 4 considers the problem of a seller who is interested in dynamically pricing her product when consumers' utility is influenced by the mass of consumers that have purchased in the past. Two scenarios are studied, one in which the monopolist has commitment power and one in which she does not. We characterize the optimal selling strategy under both scenarios and derive comparisons on equilibrium prices and demands. Our main result is a characterization of the value of price commitment as a function of the social influence level in the market.